Russian winemaker Chateau Le Grand seeks Western investor

The winery has the capacity to produce 1,200 bottles annually; but it made only half that number in 2012, because of a lack of established sales channels. Source: ITAR-TASS

The Russian winemaker is looking for an investor to help it develop new sales channels and increase output. However, the company is not selling a controlling share, which is why Russian investors have been hard to find. Experts say such high-quality Russian wines have good potential, but they may need state support as well.

The owners of
Chateau Le Grand Vostok (CGV) — Russia’s leading premium winemaker — have put
up to 49 percent of equity in its parent company, OAO Avrora, up for sale. The
winery is planning to seek a prospective investor in London, in the hopes of
raising $6.5 million for the expansion of production and sales.

Elena Denisova,
chairman of the board of directors at Chateau Le Grand Vostok, said that
insufficient working capital was preventing the company from achieving its full
potential. “We are doing this not because we are in any kind of financial
trouble or poverty,” said Denisova. “As far as we are concerned, Chateau
Le Grand Vostok has considerable upside potential: our brand awareness is way
ahead of our company’s product availability in retail channels.

“In other words,
people know about our wines and are eager to buy them, but they often don’t
know where they can do so. Also, as the wine market becomes more orderly and
anti-counterfeit enforcement is improved, the market for our products will
expand substantially. It’s for this positive outlook that we have to prepare by
raising inexpensive working capital and investment,” Denisova said.

The winery has
the capacity to produce 1,200 bottles annually; but it made only half that
number in 2012, because of a lack of established sales channels. CGV will use
the proceeds from the sale to become represented in retail chains on a regular
basis and, thus, to achieve full capacity utilization.

“Our main
shareholder would like to sell up to 49 percent of the company’s equity,” said
Denisova. She noted that a potential investor is being sought via an offering
through an electronic exchange in London. They have been unable to find a buyer
for the stake in Russia. “Originally, we didn’t want to offer the stake for sale
on a broader market, as we were considering options for finding a Russian
investor; but, once the close circle of prospective investors was exhausted, we
went international,” she said.

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The challenge of
finding a buyer in Russia for a partial stake derives from the fact that
Russian investors have traditionally been wary of putting money into businesses
they cannot fully control: “This is largely caused by Russia’s weak corporate
legislation creating additional risks for prospective minority shareholders,”
said Denisova.

According to the
SPARK-Interfax database, ZAO NTTs Impuls Tekhnologii holds the biggest equity
stake in OAO Avrora (24.4 percent), while the remaining shares are held by
individuals. The company owns 4,200 acres of agricultural land 25 miles from
Anapa.

Artur Sarkisian,
head of the Sommelier Union, is confident that quality Russian wines —
including those made by CGV — will soon take a prominent place in wine stores
and on restaurant wine lists. “Now that Russia has started making good wine,
it’s only natural for it to be represented in both restaurants and in broader
retail chains,” said Sarkisian. “But, for this to happen, the state should
support domestic wines — even by administrative measures.”

Sarkisian cited the example
of Krasnodar Territory, where the local government requires restaurants to
source at least 50 percent of wine lists in Russia. “For Russia as a whole,
this threshold could be set at 20 percent, with the same administrative
measures taken with regard to retail stores,” Sarkisian said. He noted,
however, that, in order to preserve the reputation of Russia’s winemaking, a
broad-based jury of experts should certify the products of companies wishing to
qualify for such a state support program.